QUESTION: Crowdsourcing: Income for Tax Cheats and Illegal Aliens?

In a recent blog post, I probably came across as being enamored with the idea of crowdsourcing. I appreciated the inclusiveness of it, and I saw a great deal of potential for crowdsourcing to be used in ways that help people who are the victims of natural disasters and other calamities, and who are in desperate need of a source of income. But after speaking with the CEO of a company that's approaching crowdsourcing strictly as a for-profit venture, I'm much less enamored.

The CEO is Alex Edelstein, and his company is CloudCrowd, a San Francisco-based start-up that he co-founded with Jordan Ritter, who also co-founded Napster. Edelstein seems to me to be a nice enough guy, and I was impressed by the fact that he's on the board of Kiva.org, a non-profit that facilitates microfinancing in developing countries. So when I say that I'm less enamored now with crowdsourcing, it's not because I have a huge problem with Edelstein. It's just that what he had to say about the way CloudCrowd works was kind of off-putting.

Part of the problem I have has to do with the fact that CloudCrowd boasts on its website that it has a 'proprietary virtual workforce.' That workforce is, in reality, nothing more than people on Facebook using what for now is a just a CloudCrowd Facebook app. But what really seems a little shady is the fact that CloudCrowd is perfectly happy to have the members of its proprietary virtual workforce falsify their identities when they sign up. Edelstein put it this way:

In general, people are already members of Facebook, or even if they don't like Facebook, they can create a separate identity on Facebook for purposes of working on the [CloudCrowd] system.

That seemed a bit odd, and I wasn't sure how that would mesh with the fact that CloudCrowd pays its workers through PayPal. But Edelstein didn't see a problem:

From our point of view, we need a PayPal e-mail address to pay you, the worker. But you can give us any e-mail address you want for your main account. So you can go to Facebook and create a Facebook account. At that point Facebook doesn't know about your PayPal address, so there's not really any issue there.

I'm not so sure, given that anybody can open a PayPal account under any name. First and foremost, what about the matter of income tax? Is an employer not obligated to verify the identities of the members of its workforce for income tax purposes? What about hiring illegal aliens? If I'm an illegal alien living in the U.S. and working under a false identity, is it not against the law for me to work for CloudCrowd, and for CloudCrowd to pay me for services rendered?

There was something else Edelstein told me that just didn't seem to add up. I asked him what the average monthly income of a member of CloudCrowd's proprietary virtual workforce would be, and this was his response:

We're too young to have enough sustained work to really start generating useful statistics like that. We're a start-up-we're a small group.

Well, come on. Edelstein had earlier said the company was founded in March 2009, signed its first client in November, and has had paid work ever since. When I asked him who his first client was, he initially said he couldn't remember because the company had 'processed a lot of clients.' (He finally said he thought it was San Francisco-based Lombardi Sports.)

In any case, Edelstein said what differentiates CloudCrowd from other crowdsourcing providers like Mechanical Turk is its 'credibility engine,' an elaborate system that monitors and ranks the credibility of its workers. And yet the company can't calculate how much those workers make, on average, each month? I'm no math wiz, but don't you just take the total amount you paid out in a given month and divide that by the number of people you paid?

It will be interesting to see what happens with CloudCrowd, and whether crowdsourcing in general will turn out to be a viable, profit-generating enterprise. Edelstein told me his company expects to be profitable by next year. If it is, we'll probably see a lot of other start-ups clamoring for a piece of the action. And if that happens, there will almost certainly be a lot more scrutiny of the legal implications of this new form of income generation.